partnership firm

Form a partnership firm in Mumbai in just 7 working days-Please read the following points right till the end of the page.


Taxation of Partnership Firms & Limited Liability Partnership (LLP)

  1. Partnership Firm – Definition [Sec. 2(23)]

  • Section 2(23) of the Income-tax Act which defines "Firm", "Partnership" and "Partner" provides that these terms shall have meanings assigned to them under the Indian Partnership Act, 1932.

  • As per amendment made by Finance (No. 2) Act, 2009, a Limited Liability Partnership (LLP) is included in the definition of ‘Firm’, ‘Partnership’ and ‘Partner’.

  • Accordingly the provisions of Taxation applicable to a Partnership Firm constituted under Indian Partnership Act, 1932 will equally be applicable to a firm constituted under LLP Act, 2008.

  1. Rates of Tax A.Y. 2011-12- 30.99%


Tax Audit u/s 44AB would be applicable if Total Sales, Turnover or Gross Receipts exceed Rs.2 cores from asst-18-19.


There is no requirement of audit for a Partnership Firm under Indian Partnership Act, 1932. However, under LLP Act, 2008, every LLP having turnover not less than Rs. 40 lakhs or Capital contribution not less than Rs. 25 Lakhs should get their accounts audited by a Chartered Accountant.

  1. Due dates for filing of Return of Income [Sec. 139(1)]

    Firms whose accounts are required to be audited.

    30th September

    Other Firms

    31st July

With effect from A.Y. 2006-07, it is mandatory for a firm to file return of income irrespective of whether there is taxable income or not. From A.Y. 2007-08, return of income for firms which are subject to Tax Audit u/s. 44AB need to compulsorily filed in electronic form with or without digitally signed.

  1. Conditions for Assessment as a firm

  1. The Partnership should be evidenced by an instrument in writing and individual shares of partners should be specified therein. (Sec. 184)

  2. A certified copy of the instrument (Partnership Deed) should be filed with the return of income of the year in which assessment is first sought. The copy of the Deed be certified by all partners in writing. (Sec. 184)

  3. In the year in which there is a change in constitution of firm or shares of partners, a certified copy of the instrument of change of Partnership is to be filed with the return of income for the relevant previous year. (Sec. 184)

  4. In the event there is failure on part of firm in complying with the conditions of Sec. 184 or has committed failures specified in Sec. 144, no deduction shall be allowed in respect of Interest, Salary, Bonus, Commission or Remuneration, by whatever name called. (Secs. 184, 185). However in view of new income tax returns which are filed annexureless, compliance of the above provisions can be made when first notice is received by the firm. (Refer Circular No. 3/2009/21-5-2009)

  5. Where, at the time of making an assessment of the firm, it is found that a change has occurred in the constitution of the firm, the assessment shall be made on such reconstituted firm.

    For this purpose,

    1. If any of partners cease to be partners or any new partner is admitted and one or more of the persons who were partners of the firm before change continue to be partner after the change, or

    2. Where all partners continue but there is change in shares of some or all of them, such change would constitute change in constitution of the firm (Sec. 187)

  • Where a firm is succeeded by another firm (not being a change in constitution u/s. 187 as referred in (e) above) separate assessments shall be made on the predecessor and successor firms. (Sec. 188)

  • If business or profession carried on by the firm is discontinued or where a firm is dissolved, all the proceedings under the Act shall be made as if there is no discontinuance or dissolution.

  • If such discontinuance or dissolution takes place after any proceedings in respect of an assessment year have commenced, the proceedings may be continued against persons who were partners at the time of dissolution or discontinuation or legal representative of such person who is deceased.

    (Sec. 189)

    1. Interest to Partners [Sec. 40(b)]

    Maximum interest allowable on capital/current accounts of partners is 12% per annum. The payment of interest should be authorised by and in accordance with the instrument of partnership.

    1. Remuneration to Partners [section 40(b)]

    1. Any payment of salary, bonus, commission or remuneration, by whatever name called can be paid only to a "working partner"; i.e., a partner who is actually engaged in conducting the affairs of the business or profession of the firm.

      Such remuneration should be authorised by and in accordance with terms of the instrument of partnership.

    2. Maximum permissible deduction in respect of remuneration payable collectively to all working partners has been made uniform for all Firms/LLPs engaged in business or profession with effect from a. y. 2010-11, which is as follows:—

      Book Profit

      Maximum allowable deduction

      Loss or book profit up to Rs. 3,00,000

      Rs.1, 50,000 or 90% of Book Profit whichever is higher

      On balance book profit

      60% of book profit

    The remuneration is to be calculated on book profit of the firm; i.e. net profit as per profit and loss account (in the manner laid down in Chapter IV-D) of the firm before allowing deduction of remuneration to partners.
    The book profit as per the provisions of section 40(b) is calculated as under-
    Explanation 3 to section 40(b) defines “book-profit” as to mean the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.Step by step calculations .
    1. Take profit as per P& L account.
    2. Add back salary given to partners if debited in p& L earlier.
    3. Make adjustment for expenses allowed/disallowed as per section 28- 44D.
    4. If expenses /Income of other head like house property or income from other sorcse ,capital gain has been debited /credit then reverse back the such amount from profit & loss account.
    5. As the depreciation b/f is covered under section 32(2) ,so adjustment should be made for b/f depreciation to calculate the book profit but adjustment can be done only upto maximum of profit of current year before depreciation minus b/f loss of the previous years .
    6. if any intem of income is claimed exempt u/s 10,or is considered seperately, then reduce the same from the book profit.

    1. Allowability of remuneration and interest vis-à-vis presumptive income

    Remuneration and interest will be allowed from the presumptive income computed at prescribed rates u/ss. 44AD, 44AE & 44AF.

    1. Losses of the Firm [section 78]

    Unabsorbed losses of the firm shall be carried forward and set off as per provisions of sections 70, 71, 71B, 72, 73, 74 and 74A in the hands of the firm.

    In case of change in constitution of the firm, the loss proportionate to share of the retired or deceased partner shall not be allowed to be carried forward.

     Steps to form a partnership firm-
    Step-1- Make a partnership deed, wherein you have to mention the name of the proposed partnership firm,its address, names and addresses of the proposed partners and their profit sharing ratio. If the working partners are entitled to remuneration, then prescribe the amount of remuneration in the partnership deed in respect of the partner who is entitled to remuneration. The lmits of remuneration shall be as per the limits prescribed u/s 40 (b).Also, the interest @ 12 percent is to be paid to all partners-working and non working partners on the capital contributed by them. In the partnership deed, mention the basic objective,nature of business of partnership firm and distribution of assets in case of its dissolution or insolvency.
    Step-2 Take printout of the partnership deed on a Rs 500/- stamp paper -in case if fixed capital is under Rs 50,000/-or else Rs 5000/- stamp paper in case if the fixed capital exceeds Rs 50,000/-. anad file the same 3 copies,each in english and marathi with Registrar of firms Bandra.The Registrar shaall put a stamp the partnership deed is duly filed and registered with the Registrar.
    Step-3 Our charges- We shall do all the formalities for you. Our charges are Rs 15000/-(all inclusive of government fees,stamp paper, and ROF fees)  for opening a partnership firm and getting the same registered with Registrar of firms. We shall give you the acknowledgement of the partnership deed duly prepared in english and marathi, duly notarised (3 copies)and filed with the Registrar of firms Bandra.-Mumbai-India. You are required to deposit Rs 15000/- online into our bank account as under-
    After receiving the payment, our executive will call you and tell you the requirements via  email.We shall complete all the formalities for you rigt from bringing the stamp paper,till the creation of partnership firm, in just 7 working days. Please shoot an email along with your full name,mobile number, name and address of proposed partnership firm, names and address of partners, profit sharing ratio, nature of business, terms of remuneration and interest,etc at the following email address-
    FILERETURN.COM PRIVATE LIMITED, In joint association with NIKUNJ AND ASSOCIATES-CHARTERED ACCOUNTANTS-C.A.Nikunj Shah-Chartered Accountant-LEGAL,TECHNICAL CONSULTANT FOR TAXATION,ACCOUNTANCY SERVICES. Contact-C.A.Nikunj Shah-mobile-9820442177,  tel-022-23878358
    Please note-We are private people-not government people. This is a Private Limited Company under a joint,close supervision of the leading Chartered accountancy firm-M/S Nikunj and Associates-Chartered Accountants, headed by C.A.Nikunj N Shah.